Correlation Between Guangxi Guiguan and Changshu Ruite

Can any of the company-specific risk be diversified away by investing in both Guangxi Guiguan and Changshu Ruite at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Guangxi Guiguan and Changshu Ruite into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Guangxi Guiguan Electric and Changshu Ruite Electric, you can compare the effects of market volatilities on Guangxi Guiguan and Changshu Ruite and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Guangxi Guiguan with a short position of Changshu Ruite. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangxi Guiguan and Changshu Ruite.

Diversification Opportunities for Guangxi Guiguan and Changshu Ruite

0.68

Correlation Coefficient

Guangxi Guiguan  Changshu Ruite

Poor diversification

The 3 months correlation between Guangxi and Changshu is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Guangxi Guiguan Electric and Changshu Ruite Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Changshu Ruite Electric and Guangxi Guiguan is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Guangxi Guiguan Electric are associated (or correlated) with Changshu Ruite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Changshu Ruite Electric has no effect on the direction of Guangxi Guiguan i.e., Guangxi Guiguan and Changshu Ruite go up and down completely randomly.

Pair Corralation between Guangxi Guiguan and Changshu Ruite

Assuming the 90 days trading horizon Guangxi Guiguan Electric is expected to under-perform the Changshu Ruite. But the stock apears to be less risky and, when comparing its historical volatility, Guangxi Guiguan Electric is 1.57 times less risky than Changshu Ruite. The stock trades about -0.06 of its potential returns per unit of risk. The Changshu Ruite Electric is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  746.00  in Changshu Ruite Electric on December 3, 2024 and sell it today you would earn a total of  5.00  from holding Changshu Ruite Electric or generate 0.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.31%
Values	Daily Returns

Guangxi Guiguan Electric  vs.  Changshu Ruite Electric

Guangxi Guiguan Electric

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guangxi Guiguan Electric has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Guangxi Guiguan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Changshu Ruite Electric

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Changshu Ruite Electric are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Changshu Ruite is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Guangxi Guiguan and Changshu Ruite

The main advantage of trading using opposite Guangxi Guiguan and Changshu Ruite positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Guangxi Guiguan position performs unexpectedly, Changshu Ruite can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Changshu Ruite will offset losses from the drop in Changshu Ruite's long position.

The idea behind Guangxi Guiguan Electric and Changshu Ruite Electric pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.